centrope Regional Development Monitoring Focus Report on Spatial Integration

Transcription

1 centrope Regional Development Monitoring Focus Report on Spatial Integration

2 centrope partners Austria Federal Province of Burgenland Federal Province of Lower Austria Federal Province and City of Vienna City of Eisenstadt City of St. Pölten Czech Republic South Moravian Region City of Brno Vysočina Region (observer) Hungary Győr-Moson-Sopron County Vas County City of Győr City of Sopron City of Szombathely This brochure presents key findings of the centrope Regional Development Focus Report on Spatial Integration Consortium of the centrope capacity pilot project Regional Development Monitoring Austrian Institute of Economic Research Mendel University in Brno, Faculty of Business and Economics Slovak Academy of Sciences, Institute of Economic Research Hungarian Academy of Sciences, West Hungarian Research Institute of the Centre for Regional Studies The Vienna Institute for International Economic Studies March 2011 The full report is available as download from Slovakia Bratislava Self-Governing Region Trnava Self-Governing Region City of Bratislava City of Trnava centrope agency centrope coordination office I thematic and operative co-ordination, communication & secretariat: Europaforum Wien, Rahlgasse 3/2, A-1060 Wien, office@centrope.info centrope local offices I regional project management & cooperation nodes: Office Austria I focus responsibility knowledge region : ecoplus. The Business Agency of Lower Austria, v.vyskovsky@ecoplus.at RMB Regionalmanagement Burgenland, daniela.schuster@rmb.co.at VBA Vienna Business Agency, tatzberger@wirtschaftsagentur.at Office Czech Republic I focus responsibility human capital : HOPE-E.S., v.o.s., pala@euservis.cz Office Hungary I focus responsibility spatial integration : CEURINA NKft, szokolayors@invitel.hu Office Slovakia I focus responsibility culture & tourism : Slovenský Dom Centrope, domcentropy@gmail.com Imprint Published by the centrope agency on behalf of the centrope capacity partnership. Responsibility for the contents: Petr Rozmahel (Co-ordinator), Luděk Kouba (MENDELU), Karol Frank (EU-SAV), Peter Huber (WIFO), Mihaly Lados (WHRI), Roman Römisch (wiiw) Edited by: Johannes Lutter, Europaforum Wien Layout and illustrations: claramonti grafik, Vienna. Printed by: Simply More Printing, Vienna Supported by funds of the European Union CENTRAL EUROPE

3 Content Introduction: Spatial integration from a bird eye s view 02 Key results: Strong European integration expandable internal connectivity 03 Foreign direct investment: evidence from individual FDI projects 04 Cross-border enterprise co-operation: evidence from interview data 07 Regional foreign trade 10 Labour Mobility in centrope 13 Policy conclusions 17 Foreign Direct Investment 17 Labour Mobility 20 centrope

4 Introduction: Spatial integration from a bird eye s view Spatial integration in this report is understood as economic integration in terms of the EU s four freedoms (i.e. the free movement of goods, capital, services, and people within the European economic area). In particular we take an explicitly bird s eye view on spatial integration of the centrope regions, firstly amongst each other and secondly with the Eu - ropean Union (EU) and the rest of the world, rather than focusing at the very detailed bottom - up level of individual projects or regions. The reason for this is that economic theory suggests a number of reasons why integration understood in this way has a posi - tive effect on an economy. It increases competition between firms, regions and countries, allows a higher degree of specialisation in certain goods or services, provides the possibility to exploit economies of scale and improved efficiency of allocation of production factors as well as providing opportunities for human interactions that trigger learning processes. All of this increases regional competitiveness and income levels. We thus focus on the extent and structure of foreign direct investment, foreign trade and labour move - ments among the different parts of centrope as well as between centrope and other parts of the world. We augment this information by interview data on the wishes for cross - border labour mobility and enterprise co - operation in the region to gain further insights into the potential advantages and impedi - ments to deeper integration of the region. The brochure at hand provides a summary of the findings of the Focus Report on Spatial Integra - tion, elaborated as part of the pilot action Centrope Regional Development Monitoring. The full version of the report can be downloaded free of charge from the website 02

5 Key results: Strong European integration expandable internal connectivity While the scope of topics covered in this study varies widely and results show many facets and nuances for individual flows (of goods, capital and labour) both within the region and also to other regions, a number of general results seem worth mentioning. The first is that irrespective of the flow analysed, the progress of centrope in integrating into the world and EU economy has been rapid. centrope as an aggregate has an intensity of integration above or similar to the EU average in terms of all cross-border flows, although large parts of the region in the new member states started integrating into the European economy only two decades ago. The second result is that there are large differences within the region in the integration process followed. These reflect and sometimes even exceed the vast differences in income and economic conditions. For instance, the about average share of foreign born residing in centrope is solely due to the high share of foreign born residing in the Austrian centrope, while the high share of inward FDI s is mainly due to the new member state parts and Vienna. Similarly, the high exposure to foreign trade arises from the export openness of the industrial regions in centrope, while this does not apply to more agricultural and service oriented regions. The third result is that in many ways the linkages within centrope follow a clear hierarchical pattern. This is exemplified by cross-border migration and investments within the region. Migration (when moving between centrope regions) is strongly focused towards the Austrian parts of centrope, while inward investment flows go from the Austrian centrope towards the new member state parts but hardly in the opposite direction. Finally, the fourth result is that while centrope in aggregate is well integrated in the EU and the world economy, its internal integration is much less strongly pronounced. This applies to practically all flows except for trade. Our results are thus indicative of the competitiveness of centrope in the world economy, with the individual regions clearly using their comparative advantages. However, the low degree of internal connectivity of centrope raises issues as to whether policy should and could increase efforts to improve the internal integration of the region and (if this question can be answered affirmatively) in which areas such efforts are most needed. Discussing this requires a more detailed understanding of the different cross-border flows in centrope, since the structure of integration differs vastly according to the flow, sector and subregion of centrope considered. 03

6 Foreign direct investment: evidence from individual FDI projects Top-location for investments For instance, comparing centrope to other EU regions in terms of FDI inflows per million inhabitants shows that this region is one of the most attractive FDI destinations in the EU. This applies especially to Bratislava region, Győr-Moson-Sopron and Vienna. In an EU-wide comparison of 261 NUTS 2 regions, Bratislava region is the top location for FDI with FDI projects per million inhabitants over the period from 2003 to early 2010 and Vienna is ranked 13 th. Furthermore, in a comparison of the 1303 EU NUTS 3 regions (Figure 1) 5 of the 16 centrope NUTS 3 regions (Bratislava region, Győr-Moson- Sopron, Vienna, Vas and Trnava region) are ranked among the top 10% of the FDI receiving NUTS 3 regions in Europe, a further three (South Moravia, Vienna environs and St. Pölten) are ranked among the top 25% and only two (Waldviertel and Central Burgenland) rank below average. This exceptional attractiveness of centrope for FDI is, however, accompanied by rather different patterns of FDI across regions. This is a reflection of differ- 04 ences in functional specialisation. Dividing the FDI s in the region into five different sectors (i.e. construction and other services, headquarters and business services, retail trade and services and high and medium technology as well as low technology intensive industries and electricity table 1), the largest number of projects was recorded in construction and other services (217 projects out of 793 in total from 2003 to early 2010). Slightly fewer projects (188) were established in retail trade and transport. Moreover, in centrope there were 178 investments made in the headquarters, business services and innovation sector, 144 projects in the high and medium high technology intensive industries and 76 in the low technology intensive manufacturing industry sector. The distribution of these investments across centrope regions was, however, far from uniform. The vast majority of service related FDI projects went into the two capital cities Bratislava and Vienna. This puts Vienna and Bratislava region among the top-ranked urban agglomerations in the various service sector FDI categories (Bratislava ranked 3 rd, Vienna 13 th in the construction and other services sector FDIs, Bratislava 7 th and Vienna 8 th in headquarter FDI, and Bratislava 1 st and Vienna 12 th in the retail and transport sector FDI). This thus underlines the strong service orientation and the important gateway function in terms of FDI of both capital cities.

7 Foreign direct investment: evidence from individual FDI projects By contrast manufacturing FDI projects, regardless of whether they refer to high or low technology intensive industries, went into the less urbanised but highly industrialised new member state regions of centrope, (i.e. to Győr-Moson-Sopron, Vas, Trnava and South Moravia). Thus with respect to FDI in the manufacturing sectors, these regions are all ranked in the top 5% among 1303 NUTS 3 regions receiving FDI in the high technology intensive industries and among these regions only South Moravia does not belong to the top 5% among the low technology intensive FDI receiving regions. Foreign direct investments are therefore an important source for economic development in centrope. This is primarily due to a deep integration into the world economy: The main investing country in centrope is Germany. In each of the centrope regions Germany is either the most or second most important investing country, and overall almost one quarter of all FDI projects in centrope has German origins. The second most important country in terms of individual FDI projects is the USA with 116 projects or 15% of total FDI in centrope. Moreover the USA is the most important investor in South Moravia. Internal integration is, however, less pronounced and structurally quite hierarchical. Although Austria is the third most important investor in centrope, FDI from the new member state centrope countries to other centrope regions is much rarer. The only significant investments undertaken are those by South Moravia. FDI projects per 1 mio. inhabitants, 2003 to March 2010 (Figure 1) Source: fdimarkets.com, own calculations. 05

8 Foreign direct investment: evidence from individual FDI projects FDI projects by sectors in percent of centrope total, (Table 1) Construction & services HQ, business services, innovation High and medium technology intensive industries Low technology intensive industries and electricity Retail trade & transport Number of Projects centrope in % of centrope total Burgenland Lower Austria Vienna South Moravia Győr-Moson Sopron Vas Bratislava Trnava Source: fdimarkets.com, own calculations, HQ= head quarters Győr-Moson- Sopron Extent and form of co-operation among enterprises in centrope by region (in % of co-operating enterprises in all enterprises) (Table 2) Exports co-operation of this Total Foreign affiliate joint venture Subcontracting franchising Other cooperation Total Economy Vas Vienna Burgenland Lower Austria South Moravia Bratislava region Trnava region Total Source: FAMO/AFLA Data, own calculations. 06

9 Cross-border enterprise co-operation: evidence from interview data Integration into international markets is more important than co-operation within centrope. These findings are also corroborated by a large scale enterprise survey on firms co-operation activities. Also according to these data centrope is a highly open region in terms of its firms export and co-operation activities (table 2), deep integration into European and world markets is more important than co-operation within centrope for the majority of enterprises with many of the relationships being rather hierarchical. Ownership relationships (either in the form of sole proprietorship or as a joint venture with other enterprises) are the most important form of cooperation in centrope. 6.5% of the centrope enterprises interviewed have at least one foreign affiliate or joint venture and in total 1,126 such relationships were reported in a survey of over 4000 enterprises in centrope. Subcontracting and franchising as well as other forms of co-operation, by contrast, are of a lesser importance. 3.9% of the enterprises in centrope have at least one franchising or subcontracting contract with a foreign partner and 2.4% have at least one other co-operation. The number of co-operations reported was 637 for franchising and 354 for other co-operations with international partners. Most of the FDI and co-operation activities in the region are motivated by market access motives. The two most important reasons for entering a co-operation (or investment) are the closeness to customers and the market potential abroad. Cost advantages of the region follow on third place and motives such as network advantages (i.e. the supplier networks in the region), reactions to competitor s strategies and also overcoming market entry barriers follow at some distance. Technological or human capital based motives for co-operations, by contrast, are found at the end of the list both for ownership as well as for other co-operations. Access to skilled labour is the third least important motive and the R&D capacity abroad the least important. This thus suggests a surprisingly low importance for such technology based motives. At the same time, only few enterprises co-operating in the region seem to have problems with their co-operations. Even for the most important problems reported, which are exchange rate risks and differences in mentality, only around 8.0% of the enterprises with some form of co-operation report that they currently have 07

10 Cross-border enterprise co-operation: evidence from interview data problems. Overall exchange rate risks, differences in mentality and language barriers are the most important problems encountered by co-operating enterprises. There is, however, also substantial heterogeneity between different types of enterprises in terms of the type of co-operations entered, their motivations for doing so and the problems encountered. In particular small and young firms are a somewhat special group when considering cross-border co-operation activities. Their co-operation activities are more often than in average focused on co-operation within centrope and for them market access but also technological motives are more important in entering a co-operation than for other firms. They, however, also more often report to have problems with co-operation. In particular more than 12% of the currently co-operating small firms with less than 10 employees have problems with the legal framework conditions in the region, the quality of co-operation and cultural differences in general. Large firms by contrast attach less importance to market access and a higher importance to costs as motives for co-operation. For them market potential abroad and closeness to customers ranks only behind the cost advantages among the motives for co-operation. They, however, also attach a larger weight to the access to skilled labour. In addition they in general report to have fewer problems with co-operation than small enterprises. In addition there are also some important differences between sectors and ownership forms. Domestically owned enterprises, and headquarters of multi-plant enterprises disproportionately often co-operate in R&D co-operations and construction enterprises (whose market radius is more limited than that of manufacturing firms) but also partially and completely foreign owned firms more often tend to co-operate with partners from another centrope country than with partners from third countries. Most of the FDI and co-operation activities in the region are motivated by market access motives. enter the growth market. enter centrope. 08

11 Cross-border enterprise co-operation: evidence from interview data Motives for co-operations by enterprise size (Figure 2) Marketpotential abroad Closeness to customers Cost advantages abroad Network advantages abroad Overcoming market entry bariers Reaction to competitors strategies Securing supplies Working abroad only possible by investing Delivery to home market To access markets in third countries Legal advantages Access to public sector as customer Taxes, Subsidies Access to skilled labour Others R&D capacity abroad or more employed 50 to 249 employed 10 to 49 employed 0 to 9 employed S: FAMO/AFLA Data, own calculations. Note figure reports share of enterprises reporting category as important motive, answers are not mutually exclusive. 09

12 Regional foreign trade High trade integration of centrope. In terms of foreign trade, centrope consists on the one hand of regions that are highly export oriented, (South Moravia, Győr-Moson-Sopron, Vas and Trnava region) and on the other hand of regions with less activity in foreign trade, either because they are more service oriented regions like Bratislava region or Vienna or less industrialised like Burgenland. In total, the trading patterns and the extent of foreign trade have a direct relation to the amount and type of FDI s the centrope regions received. The exportoriented regions predominantly received FDI in the manufacturing sector. The engagement of multinationals in these regions was clearly influenced by the favourable production conditions, their proximity to Western markets and relatively low wage and production costs. Hence most of the goods produced in the FDI firms are exported Europe wide or globally and this finds its reflection in the trade statistics. To a minor extent this also holds for Bratislava region, which despite being a capital city region received a comparatively high amount of manufacturing FDI. Overall foreign trade of regions is mainly with medium high and medium low skilled manufactured goods, again corresponding to FDI flows; West-transdanubia also exports a considerable amount of high technology intensive goods. Trade integration of centrope is therefore high by European standards. In terms of foreign trade the centrope countries are much more important to each other than GDP suggests. While they account for less than 3% of EU wide GDP the centrope regions export around 12% to over 40% of their EU-27 exports to other centrope regions. Certainly geographic proximity plays an important role here, just as historic ties or an almost common language like in the case of Slovakia and the Czech Republic where trade integration is stronger than elsewhere in centrope. In terms of foreign trade the centrope countries are much more important to each other than GDP suggests. 10

13 Regional foreign trade Exports of centrope regions to EU-27 and centrope countries, in % of GDP (Table 3) Burgenland EU CZE HUN SVK Lower Austria EU CZE HUN SVK Vienna EU CZE HUN SVK Czech Southeast EU AUT HUN SVK West-transdanubia EU AUT CZE SVK Bratislava region EU AUT CZE HUN Western Slovakia EU AUT CZE HUN Source: Eurostat, own calculations 11

14 Regional foreign trade Exports of CENTROPE regions to centrope regions (Table 4) Burgenland Lower Austria Vienna In % of GDP centrope As share of total Exports Czech Southeast West-transdanubia Bratislava region Western Slovakia Czech Southeast West-transdanubia Bratislava region In % of GDP centrope As share of total Exports Burgenland Lower Austria Vienna Czech Southeast West-transdanubia Bratislava region Western Slovakia Western Slovakia In % of GDP centrope As share of total Exports Burgenland Lower Austria Vienna Czech Southeast West-transdanubia Source: Eurostat, own calculations 12

15 Labour Mobility in centrope Migration patterns reveal risk of brain drain While barriers to FDI and trade in centrope were removed already before accession to the EU, institutional restrictions on cross-border labour mobility limited movements of labour in the region until recently. Nonetheless centrope is characterised by an average openness towards foreigners. Due to a high share of foreign born residing in the Austrian part, in total 8.1% of the total working age population residing in centrope was born abroad. This is only slightly lower than the 8.6% average of the EU countries. centrope is, however, also rather weakly internally linked in terms of labour migration. Only around 1.2% of the population residing in one of the NUTS2 regions of centrope is born in a different centrope-country than they reside in. Even in Vienna only 2.6% of the population is born in another centrope country. Although evidence of labour market integration is somewhat more pronounced in the field of commuting, here too, the region is still far from deeply integrated. In total 1.8% of the employed in one of the NUTS2 regions of centrope commuted across borders in This is well above the average of 0.7% in the EU27 and places some of the centrope regions among the top 10 European NUTS 2 regions in terms of cross-border commuting. This share is, however, also well below the levels of commuting that could be expected from highly urbanised regions such as centrope if it were located in the same country. Thus national borders still represent an important barrier to cross-border labour mobility in centrope. Furthermore, cross-border commuting and migration in the region follow a rather hierarchical pattern. In particular with respect to cross-border migration, the majority of moves has been from the new member state regions to Austria, with only very little of the migration occurring among the new member state regions and migration from Austria to the new member states being extremely low. Once more the situation is slightly different with respect to commuting. Due to historic linkages, cross-border commuting among the new member state regions (in particular from Slovakia to the Czech Republic, but also to Hungary), is slightly more pronounced and Austria is less well integrated. Aside from commuting from the Hungarian centrope to the Austrian parts, which was partially liberalised 13

16 Labour Mobility in centrope by special institutional arrangements, cross-border commuting to Austria is rather low and cross-border commuting from the Austrian centrope to the new member state parts is almost unheard of. centrope is therefore still far away from the bilateral commuting and migration flows characteristic of circular and temporary labour mobility, that have been found particularly conducive of regional development in many case studies. Much rather, from the point of view of the region as a whole, emigration to other parts of Europe (as well as the rest of the world) is more important than internal migration and commuting. Around 10% of the persons born in one of the centrope countries currently live in another EU27 country (see Figure 4). While some of these results may have been expected given the only recently removed institutional barriers to labour mobility, as well as the existing wage differentials between the Austrian centrope and its new member state parts (which make mobility from the Austrian centrope to the new member states rather unattractive from a financial point of view), one of the most worrying findings of this study is the high potential for brain drain in the region. Although the share of tertiary educated among the migrants to centrope is higher than among natives, among all foreign born residing in the EU27 centrope gets a below average share of tertiary educated. In addition the share of highly educated among the emigrants from the centrope countries is almost twice as high as among immigrants in all parts of centrope but the Slovak part. In terms of the worldwide competition for talent centrope is, therefore, marked by low competitiveness. No evidence for increasing labour mobility within centrope. These facts are also unlikely to change on account of the institutional changes affecting cross-border labour mobility in centrope on 1 May Evidence on the willingness to commute and migrate in the region suggests that migration potentials in the region are low, have reduced since 2004 and are often directed to countries outside centrope. At the end of 2010 wishes to become mobile across borders were held by 1.1% of the working age population in the new member state regions. This was lower than in Vienna (where 3.1% of the population had this wish). Only about one third of those wishing to become mobile with some degree of concreteness want to move to Austria. The only area where some change to pre-existing patterns could be expected is a slight increase in cross-border commuting to Austria. In addition, those willing to migrate in the centrope regions of the new member states constitute a group that is strongly drawn by better economic conditions in the recipient region, while getting new experience is a more important determinant of the decision to migrate for Austrian respondents. By contrast, for those unwilling to move, the motivations are entirely different. The key motives for non-mobility are personal factors and non-monetary costs of mobility, such as the fear of losing family and personal networks, the feeling of affinity to one s home country meet expectations. meet centrope. 14

17 Labour Mobility in centrope and knowledge of relevant local factors. Among the monetary factors identified only real estate assets (ownership of a house, home or garden) and the lack of investments in human capital, like foreign language skills are of some importance. Those who would prefer to move to other centrope countries, however, do so mainly because of the geographical proximity and the high wage levels. Many other important motives for choosing a particular country to migrate to, such as language skills, resident family members and relatives or friends, are of about similar importance for centrope and non-centrope countries and all important motives associated with the acquisition of human capital such as the desire to learn the language and education or training opportunities speak for migrating to countries outside centrope. For migrants that are primarily interested in acquiring human capital the centrope countries are therefore less attractive destinations than other EU 27 countries. Share of working age foreign born from centrope Countries residing in NUTS 2 regions of the EU 27 (in% of working age population, 2007) (Figure 4) Source: ELFS, Note: Germany and Ireland omitted due to missing data problems, working age population = population aged 14 to

18 Labour Mobility in centrope Education structure of immigrants, emigrants and natives in centrope (Figure 5) 100% 90% 80% % 60% 50% 40% % 20% 10% % Natives Foreign born Emigrants Natives Foreign born Emigrants Natives Foreign born Emigrants Natives Foreign born Emigrants Austria Czech R. Hungary Slovakia Low Medium High Source: ELFS (2007), own calculations Note: Emigration based on country data 16

19 Policy conclusions: Foreign Direct Investment In sum, therefore centrope is a highly open region. Yet, for the majority of its enterprises and residents a deep integration into European and world markets is more important than integration within centrope. The region is consequently still far away from the closely knit, non-hierarchical intra-regional networks focused on technology and knowledge exchange, that have often been seen as the determinants of regional success in the case study literature on regions such as e.g. Silicon Valley or Little Italy. This may, however, not be a severe problem given that centrope is a small region for which integration in the world economy is of much larger importance than internal integration. Also following a strategy which imitates the spectacular cases mentioned above is likely to face rather low chances of success, since these cases are difficult to imitate. A more pragmatic approach to deepening internal integration in centrope should thus focus on a limited number of policy initiatives that address issues of particular importance for the region. enter the growth market. enter centrope. 17

20 Policy conclusions: Foreign Direct Investment Marketing centrope as a location for FDI Increasing the attractiveness of centrope as a location for FDI For instance, our results indicate that the attraction of foreign investments is a sound strategy for the centrope regions in terms of economic growth and development. Given this, there is some potential for joint initiatives that aim to market centrope as a location for FDI s. Realistically such initiatives will, however, have to take into account the potential competition for FDI among individual centrope regions. As illustrated above, FDI in the centrope is not mutual, where the centrope regions or countries invest in the other centrope regions. Rather the centrope regions are in competition with each other for FDI coming from other parts of the world. One option is therefore to focus on the heterogeneity of the region in terms of type of FDI, since for instance Vienna and Bratislava region, due to a different functional specialisation, have a structure of FDI, which focuses strongly on headquarters and business and innovation services, while Győr-Moson-Sopron, Vas, Trnava, South Moravia region and potentially also Lower Austria as well as Burgenland compete mainly for manufacturing multinational enterprises. Another option is to take into account that competition for FDI is not confined to centrope alone, but that centrope regions also compete with all other regions. This suggests that such initiatives are most likely to yield high returns, when they focus on the early stages of an FDI decision, where companies choose a larger region within which to invest and/or when it focuses on parts of the FDI market (i.e. countries or sectors) where only few FDI have come from so far. Aside from marketing, however, also the attractiveness of the region for FDI has to be maintained. In this respect, recent studies identify several determinants for FDI, such as a good transport infrastructure, industry clustering and/or existing clusters of foreign firms, the educational level of the population, tax rates and the size of domestic markets as factors conducive of FDI. Furthermore company CEOs often mention market size or the growth potential of markets, the costs of production and the presence of suppliers, universities and research and education of the population as important determinants of the location of FDI. Clearly many of these determinants (e.g. tax policy, labour or production costs and market size) are not policy relevant or outside the centrope regions control. Other determinants such as infrastructure, education, language skills, by contrast, can be influenced by policy but are hard to address by cross-border regional policies. Finally, there are also factors, where something might be gained from cross-border cooperation. These are industry clustering, One option is therefore to focus on the heterogeneity of the region in terms of type of FDI the presence of other multinationals and the presence of suppliers. These factors should therefore be a major focus of cross-border policies. 18

21 Policy conclusions: Foreign Direct Investment Embedding existing FDI in the region Generating deeper integration of existing and new SME and R&D networks Furthermore, multinational enterprises investing in a region are not independent, autarkic entities but rather depend on a network of local or nearby suppliers of intermediate inputs in the form of goods and services. Given the complexity of production or value chains of multinationals it is more than unlikely that one region alone can provide all the necessary inputs even for medium scale multinationals. This can be exploited by policies aiming both at attracting FDI as well as by policies aiming at a deeper integration of the existing FDI s in the region into the regional economy for benefit of the whole region. Given the already high importance of FDI, this latter objective (i.e. embedding existing FDIs in regional supply and delivery networks) is of an even higher importance than attracting new FDI and may have a number of positive effects such as reducing search costs for suppliers, reducing weaknesses of individual centrope regions as business locations and tying FDI more strongly to the region as well as generating more spillovers to local firms. Such strengthening of cross-border ties of firms depends inter alia on a number of prerequisites that facilitate co-operation. Amongst these are education, communication infrastructure and importantly foreign language skills and transport infrastructure. Certainly, these factors are important for integration independently of foreign direct investment, but taking FDI into account it makes even more sense to put emphasis on them in crossborder policy. In addition, there is also some room with respect to developing more locally based vertically integrated enterprise networks in centrope, as well as integrating into international enterprise level R&D networks. Our results indicate that policies aiming at increased co-operation within centrope and/or improving the integration into corporate R&D networks have to take into account the heterogeneity of the enterprises. For instance, the primary target groups for cross-border enterprise co-operation would be foreign owned enterprises and young and small enterprises, since they have a high chance of co-operating in the region. Policies targeted at these enterprises would, however, have to follow quite different strategies. For example, young and small enterprises are likely to need substantial support both in the form of consulting services as well as with financing, since they face larger problems in cross-border co-operation than any of the other enterprise groups considered. For foreign owned enterprises, by contrast, a much narrower spectrum of measures focused on helping with finding potential partners may suffice, since they in general report only few problems when co-operating. Similarly, to increase integration into international R&D co-operations the target groups would be natively owned headquarters of multi-establishment enterprises and potentially also young enterprises, with again the young enterprises needing substantial support. 19

22 Policy conclusions: Labour Mobility Strengthen existing initiatives to ease cross-border labour mobility and improve crossborder placement activities for being rather slow and excessively bureaucratic by those looking for work in other countries. More flexible and less bureaucratic forms of cross-border placement through co-operation of regional public employment services should be considered. In terms of labour mobility, by contrast, centrope is faced with three closely related policy challenges: The first is to increase internal mobility. Aside from the recently abolished institutional restrictions on cross-border labour mobility on the Austrian labour market, evidence suggests that cross-border mobility is also hampered by difficulties of mutual skill recognition (due to different educational systems), risks of over-qualified employment and difficulties in gaining information. Existing initiatives aimed at improving the comparability and cross-border transferability of qualifications, improving language training as well as providing information on labour market possibilities for workers should therefore be strengthened, with the aim of making centrope an integrated labour market. One aspect in this endeavour is to strengthen the role and credibility of public employment services (PES) in cross-border labour market placements, since only a small number of persons wishing to look for work abroad consider using the services of the PES when searching for an employer across borders. Current systems of cross-border labour placement such as EURES are often criticised Encourage and establish systems of temporary and circular migration In addition, policy should also focus on establishing and strengthening existing channels for circular and temporary migration, with the aim of changing current patterns of uni-directional labour mobility resulting in brain drain to bilateral relationships based on brain exchange. This study finds that those willing to move in centrope say that the advantage of mobility within centrope is that it involves only short distances, while the disadvantage is often seen in the few opportunities to learn in the region. To achieve increased internal mobility it is therefore necessary to focus strongly on increasing the human capital content of migration. In addition since the majority of persons considering migration are rather young, focusing on different life-cycle phases of migration may be important. Programs focusing on increasing 20

23 Policy conclusions: Labour Mobility student exchange (at all levels of education starting from vocational to university education) and on early career mobility (of workers of all education groups) should therefore receive high priority. In addition also activities to increase temporary migration of persons (e.g. on sabbaticals) can augment these endeavours. Improve competitiveness of centrope in the international competition for talent The second policy challenge is to increase the competitiveness of centrope in the worldwide competition for talent. In this respect a much larger spectrum of policy measures than those in the hands of regional policy have to be addressed to achieve improvements, since a substantial part of the migration decisions and choice of country of residence of highly skilled migrants is shaped by factors that are in the hands of national policy. For instance, the mobility of students and academics is shaped by the performance of the university sector and the innovation system in a region, while that of engineers, industry researchers and managers is much more dependent on the performance of the business sector and entrepreneurs are often drawn to a country by financial facilities, bureaucratic efficiency as well as issues of tax policy, all of which can at best only be partially influenced by regional policy. Nonetheless, regional policy can contribute to increasing the attractiveness of a region for the highly skilled by a) improving the above conditions for high skilled mobility wherever possible and b) providing services geared towards the needs of migrants and reducing costs of integration. Furthermore, results from the migration literature also suggest that small labour markets are less attractive for highly skilled migrants than large ones so that increasing crossborder labour mobility within centrope (thereby enlarging national labour markets) in particular when geared towards the needs of the highly skilled are complementary to the goal of increasing the attractiveness of centrope as a place for immigration of highly skilled. Increase effort to avoid brain drain from the region and resource expatriates The third policy challenge is to avoid brain drain to other regions. This is obviously closely related to the aim of increasing centrope s competitiveness in the worldwide competition for talent, since any policy that increases the attractiveness of a region for highly skilled immigrants will also reduce incentives for the highly skilled to emigrate. In addition, however, a number of further policy aspects could be considered. In particular a number of regions and countries have recently organised special initiatives for high-skilled returnees, which provide them with consultancy on job offers back home and services to help with integrating family and children into the home economy. Also given the substantial emigration of highly skilled, the option of resourcing expatriates that are unwilling to return by for instance using them as anchor persons for networks abroad (the so called Diaspora option) could be a complementary measure. In this respect a number of recent policy initiatives (e.g. Austrian Scientists North America, Siss-List.com) have launched networks that aim at improving the links between and to researchers abroad and to intensify and maintain their connection to the sending country.

24 meet europe. meet centrope.